Lower quartile house prices dropped in most regions in May

Housing became more affordable for first home buyers in nine regions and worsened in three last month, according to the latest Home Loan Affordability Reports.

The movements in affordability were mainly driven by changes in the Real Estate Institute of New Zealand's lower quartile selling price, which dropped slightly in May compared to April in eight regions, improving affordability in those regions.

Conversely the lower quartile price was up in in four regions compared to April, worsening affordability in those places.

The improvement in home loan affordability was also helped by a very slight drop in mortgage interest rates, with the average of the two year fixed rates offered by the major banks dropping to 4.66% in May from 4.69% in April.

Regions which recorded a fall in their lower quartile selling prices in May compared to April were Bay of Plenty, Hawkes Bay, Manawatu/Whanganui, Wellington, Nelson/Marlborough, Canterbury, Otago and Southland.

In most cases the drop in prices was small, -$5000 or less, however there were more substantial falls in Nelson/Marlborough -$36,000, Otago -$17,000 and Southland -$10,000.

Those price falls, combined with the modest fall in average mortgage rates, saw affordability improve in all eight regions.

Affordability also improved in the Waikato even though the lower quartile price increased in the region, because the size of the price was so small (+$1000) it was cancelled out by the fall in interest rates and a marginal improvement in household incomes.

The other regions to record increases in the lower quartile selling price in May compared to April were Northland +$4000, Auckland, +$5000 and Taranaki +$17,000.

In all three cases the price rises more than offset the effect of the fall in average mortgage rates, leading to a worsening of affordability in those regions.

However Auckland and Queenstown remain the only region in the country where housing is considered unaffordable for typical first home buyers on median incomes, because the mortgage payments on a lower quartile-priced home would eat up more than 40% of their take home pay.

In Auckland, the lower quartile selling price increased from $660,000 in March and April to $665,000 in May, which pushed up mortgage payments from 42.99% of median take home pay for typical first home buyers to 43.14%

Around the rest of the country, the mortgage payments on a lower quartile-priced home ranged from 10.36%of take home pay in Southland to 28.62% in the Bay of Plenty, all well within affordable limits.

And although overall affordability worsened for first home buyers in Auckland in May, that was not a uniform trend throughout the region.

Lower quartile prices declined in May compared to April in Rodney, South Auckland and Franklin which saw affordability improve in those districts, while a modest increase of $1000 in Waitakere's lower quartile price saw affordability improve there once the decline in interest rates was taken into account.

However more substantial rises in lower quartile prices in central Auckland, North Shore and Papakura saw affordability worsen in those districts.

One area where there was a particularly large fall in the lower quartile price was Queenstown, where it dropped from $727,000 in April to $600,000 in May, the lowest it has been since August 2016.

However Queenstown remains the only district outside of Auckland where housing is unaffordable for typical first home buyers on median incomes.